We here at Wm.V.Frankel & Co applaud and approve of SR-NASD-2003-128 as a step in the appropriate direction to realize an equitable National Market System. While we endorse the current rule change of limiting access fees for participation in Supermontage as an interim step, it is imperative that access fees be eliminated in our market. Access fees charged to nonsubscribers of respective ECN’s are an inherent impediment to free trade by unfairly subsidizing the ECNs. A level playing field must exist for all market participants. A market so structured with a level playing field allows competitive forces to ensure a fair and equitable marketplace. Access fees create an anticompetitive advantage that mires price discovery by masking a transactions true cost.

No market participant should have the ability to trade purely for the purpose of creating rebate revenue. This practice is accomplished by using sub penny quotes to jump ahead of an existing order to affect a rebate. The revenue is created when an ECN jumps ahead of an existing order by $.001 so that it may charge a $.009 access fee. The “rebate trader” then immediately takes out the original order netting up to a $.008 difference. This rebate arbitrage serves no productive function other than to enrich the coffers of its creators through a gaming of the current system. The resulting fictitious volume is a detriment to both institutional and individual investors alike by clouding the transparency and stifling the competition of our markets. A $.009 fee in a $.01 spread market is unconscionable to all market participants being so egregiously taxed.

While we support SR-NASD-20003-128, we feel that the only true resolution of the issue is the complete abolition of all ECN access fees being charged to any market participant. The only logical and permissible access fee should be those assessed to the order entry side. Obviously we feel any system has a right to charge a fee for voluntary submission of orders. That model would ensure innovation through competition that would benefit all. Your attention in this matter is greatly appreciated.